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Providence put among ‘cities set to enter default danger zone’

April 19th, 2012 at 12:43 pm by under Nesi's Notes, On the Main Site

Rhode Island got more of the sort of national publicity it doesn’t need this week, with Providence again characterized as another Detroit – a city that is now perilously close to bankruptcy.

Here’s Michael Connor, reporting for Reuters on Tuesday:

[T]he next series of major cities and counties in danger of defaulting on their debt can hardly point to one single decision for their malaise. Whether it be Detroit, Miami or Providence, Rhode Island, their problems have a lot more to do with financial policies that put them on course to live well beyond their means. …

“This is a lagging process,” said Richard Ciccarone, managing director at McDonnell Investment Management. “Capitulation may not come for years. In the crash of 1929, the defaults did not come until 1934 or 1935. The marginals hang on as they can.” …

“Over the next year or two, there is a big risk of more Chapter 9 filings in certain parts of the country: California, Rhode Island and the Midwest,” said municipal bankruptcy lawyer David Dubrow of Arent Fox. …

In Rhode Island, where the governor backs legislation to reduce operating costs for distressed local governments, cities such as Providence and Pawtucket are seen as possible candidates for bankruptcy. Afflicted by underfunded pensions, the state’s Central Falls is bankrupt.

In Providence, Mayor Taveras used the word “bankruptcy” for the first time in a Feb. 2 news conference, but since then he’s stressed his optimism that it won’t come to that. The city wants retirees to agree to pension concessions by May 1 – less than two weeks from now – and still hasn’t announced a deal with six of its seven biggest nonprofits. Taveras will unveil his proposed 2012-13 budget on Monday night.

At the General Assembly, meanwhile, the House Finance Committee will hold a hearing to consider Governor Chafee’s municipal relief legislation next Thursday at 1 p.m. Senate Finance held its own hearing on April 12, but the panel took no action that day and has yet to schedule a vote on any of the bills.

• Related: WSJ editorial lumps Providence financial crisis in with Detroit’s (March 15)